Methanex Corp (MEOH) 2013 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Methanex Corporation fourth-quarter results conference call. I would now like to turn the meeting to Ms. Sandra Daycock, Director of Investor Relations. Please go ahead.

Thank you. Good morning, ladies and gentlemen. Welcome to our fourth quarter 2013 results conference call. Our 2013 fourth-quarter report along with presentation slides summarizing the Q4 results can be accessed at our website at www.Methanex.com.

I would like to remind our listeners that our comments and answers to your questions today may contain forward-looking information. This information by its nature is subject to risks and uncertainties that may cause the stated outcome to differ materially from the actual outcome. Certain material factors or assumptions were applied in drawing the conclusions or making the forecasts or projections, which are included in the forward-looking information. Please refer to our latest MD&A and to our 2012 annual report for more information.

For clarification, any references to EBITDA, cash flow, or income made in today's remarks reflect our 63.1% economic interest in the Atlas facility, and our proportionate economic interest in the Egypt facility. On December 9, 2013, we completed the sale of a 10% equity interest in the Egypt facility. Our proportionate interest in the facility was 60% prior to that date and 50% thereafter.

In addition, we report our adjusted EBITDA and adjusted net income to exclude the mark to market income -- impact on share-based compensation and other nonoperating items. We report our results in this way to make them a better measure of underlying operating performance and we encourage analysts covering the Company to report their estimates in this manner.

I would now like to return our call over to Methanex's President and CEO, Mr. John Floren, for his comments and the question and answer period.

Good morning, everybody. I'd like to start off just by reviewing some of the highlights of the quarter. As you can see it was an outstanding quarter with adjusted EBITDA of $245 million, and adjusted earnings per share of $1.72. 2013 adjusted net income of $471 million and adjusted earnings per share of $4.88 are the highest in the history of the Company. In Q4, we also had a record sales quarter, with 2.127 million tonnes sold, and 2013 was also the best year for sales in the history of the Company with almost 8 million tonnes sold.

Global demand in the quarter was up by about 2% versus Q3, really led by methanol to Olefins demand, as well as a strong global energy and traditional demand. A tight supply environment continues with numerous unresolved planned outages due to a combination of operational issues and gas restrictions. We continue to witness a high methanol price environment, well above the current cost curve.

Some of the operational highlights for our Company in the quarter include the Medicine Hat plant went down on November 27 with a loss of 50,000 tonnes in the quarter. The plant resumed operations in early January and is currently operating at high rates. Our Titan plant in Trinidad experienced a small unplanned outage in the quarter where we lost 15,000 tonnes. Gas curtailments in Trinidad were somewhat lower in Q4 than Q3.

In Egypt, we had available natural gas to run the plant at approximately 95% during the quarter. We also had a technical issue where our share of lost production was about 20,000 tonnes. We estimate to be able to operate the plant at approximately 75% to 80% operating rates on average during 2014. We continue receiving natural gas in Chile under a tolling arrangement from Argentina, which allowed us to operate at approximately 50% and make a contribution to earnings.

Logistics costs were lower for 2013 versus 2012 by about $38 million, as a result of more efficient vessel routes due to higher production, improved backhaul margins, and lower ocean freight, as well as some strategic improvements we've made in our logistics infrastructure. During the quarter, we settled an insurance claim and this contributed an incremental $14 million to adjusted EBITDA.

Some of the highlights on the corporate development initiatives include, we completed the New Zealand production expansions on time and under budget. We completed the sale of 10% of the equity we had in EMethanex to APICORP at a value of around $1,200 a metric tonne of installed capacity. We ordered six new 50,000 metric tonne vessels that will be able to run on methanol.

We continue to progress our Geismar relocation projects. We reached an important milestone during the fourth quarter, and all the major equipment pieces for Geismar 1 are now on the site in Louisiana. We have seen some modest scope and cost creep during the dismantling and shipping of the equipment, and are applying our learnings to the second relocation project.

Also, as I mentioned on the last conference call, we are observing schedule and cost pressure in Louisiana, particularly related to labor costs. We have focused additional Management attention and resources on these projects, and are working hard to mitigate the cost and schedule pressures. These relocations continue to be excellent projects for shareholders and support an increase in our operating capacity to 8 million tonnes by 2016. I'll stop there and happy to take any questions.

(Operator Instructions)

Laurence Alexander, Jefferies.

Hi John. This is Rob Walker on for Laurence.

Hi Rob.

I guess first how has China DME and MTO demand been tracking lately?

So Rob we saw a fairly significant spot price increase in China as you would have noted. Fortunately, we didn't see any DME demand destruction. And that was really as a result of two things, higher LPG prices and a shrinking of the discount relative between DME and LPG, so operating rates really weren't impacted by the high prices.

The two large MTO plants that have recently come up, we did see them reduce operating rates somewhat as a result of the high prices, but not shut down because of the high prices. So we did see some demand go away because of higher prices on MTO, but really this is new demand for 2013 versus 2012, so the net impact was an increase in overall demand, MTO, regular traditional, and energy applications.

And I guess just given the more attractive economics and higher prices I guess around the world, and you mentioned that China is increasing its production. How quickly and how much more production do you expect? Are there debottlenecking projects that make sense now there?

I would expect they've been trying to produce at highest rates they can over the last months. We are well above the cost curve in pricing, so anybody that can produce higher should be looking to do so. So if the current price environment persists you would expect people to make investments in debottlenecking and trying to get higher operating rates if they have a view that the current price environment is sustainable over the long term.

All right. Thank you.

Thanks Rob.

Jacob Bout, CIBC.

Good afternoon. Just a question on the -- you're talking a bit about the cost creep at Geismar. What are you thinking currently? Is this 10%? 20%? And then what's the outlook right now for capitalized interest?

I'll turn the first part of that question over to Dean Richardson, our Corporate Controller -- sorry, the second part of the question.

Sure. On the capitalized interest, we don't have a number; we can take that offline if you want, but we'll be capitalizing interest throughout the project.

And as far as a budget number we don't have one to share, Jacob.

Okay. And then on the -- where are you at right now with the gas contract for the second plant?

Yes. We're still negotiating. We have not had success in securing a gas contract for the second plant. We are still very comfortable if we don't secure a gas contract, all of the information we are seeing on the shale gas, the availability, as well as the cost structure looks really attractive to have a really high-quality plant there with the second one.

But with the recent higher gas prices, does that make the negotiations a little tougher?

No. It's interesting -- I think the reason our gas prices in a traditional sense if you had a cold winter like we've had in previous years, you'd see $15 gas, so the fact that we haven't seen a run up to more than $5, I think reinforces our impression that gas is readily available and people can make a good profit at $4 to $6, so it's just reinforced what we've been saying all along.

Okay. Thanks a lot.

Thanks Jacob.

Hassan Ahmed, Alembic Global.

Hi there John.

Hi.

John, obviously we saw a reduction in the discount rate going from Q2 to Q3, and in the call last quarter you talked about how there were some possibly legacy contracts that expired and now we've seen another shift downwards. So is that really a function of more legacy contracts rolling off or market tightness? What do you attribute that to?

Yes. Well it's a number of factors. I think I've said before that when we have a large run-up in spot prices, the way some of our contracts work in Asia there is a huge benefit to us on the discount rate, and that's what we saw in Q4. I've also said, in tight markets as we renegotiate contracts, we are able to improve conditions and that's what we are continuing to see.

So we did benefit quite nicely in Q4 because of this anomaly in the quick run-up in spot. Probably not repeatable in Q1, Hassan. So I wouldn't take what we did in Q4 and extrapolate that as the new norm.

But we will -- you will see over a trend over the next years as markets are tight as well as some of our fixed price contracts roll off, our discounts on average will improve quarter over quarter.

Fair enough. And as a follow-up, as we are obviously marching towards the start up of Geismar 1, could you just give us your latest thought process regarding MLP? Filing for an MLP?

We are looking at it. We have a team of people looking at it. We are studying what's going on in the marketplace. We've witnessed the OCI MLP and the interesting multiple they are able to achieve.

But the nice thing is we have time. We are not going to be operating the first plant until later this year at the earliest so we don't have to think about rushing into saying we are going to do an MLP. And then we'll work this year on that issue and make a decision later this year if that makes sense for the Company, and if it's accretive value to shareholders, why wouldn't we do it?

Fair enough. And just really quickly let's say that you start production towards the end of the year, I don't know the whole sort of filing structure and the like, but is it fair to assume -- just purely on the legality of it, that as soon as you start generating any revenue from Geismar 1, as quickly as that you could file for an MLP status?

Well, we are doing that work right now. I think that we understand that to be true but I think to say definitively is probably premature, because what we understand there's a lot of people like to see maybe some steady operating rates, especially in a plant that's being relocated as opposed to a restart. So I think those are details that we are going to try to cover off in the next six months or so.

Fantastic. Thank you so much.

(Operator Instructions)

Ben Isaacson, Scotiabank.

Hi. This is actually Shawn Siddiqui stepping in for Ben who is on the road. My question is on Chile. Given that you've had some improved gas supply in the region, can you give us a sense of if there's a now opportunity to secure gas outside of the tolling agreement?

We are continuing to have a positive experience in Chile, not only with the tolling agreement but with gas in Chile. Both GeoPark and ENAP in Chile are spending around $300 million in drilling this year. There has been success in the hydraulic fracturing programs in Chile.

So we are optimistic we'll continue to be able to run in the near term. We're going to have a pinch point here again in their wintertime, but we're working hard to be able to run through their wintertime, and at the same time we have negotiations ongoing to monetize the Argentinian gas contracts and we are pursuing those.

So I think, over time, the Argentinian basin for shale gas non-conventional looks quite interesting, and as they get developed, there's a good possibility that we could get more gas from Argentina. But I think it's still too early to make certain forecasts around that.

Okay. Thanks John.

Steve Hansen, Raymond James.

Yes. Good morning everyone. John, you guys have a very strong history in the past of returning cash to shareholders -- to capital shareholders through different forms and means, and one obviously has been stock buybacks in the past. We haven't seen those in some time; you've alluded to them perhaps coming back as the Geismar spend works itself through.

Any updated thoughts on when we might see a stock buyback program kick back in?

Hi Steve. Yes. So we've always taken a balanced approach to cash distributions. First I'll say is we're not looking to diversify, so we're going to stay in methanol. So you don't have to worry about uses of cash for that.

We have three uses of cash -- grow the Company, dividend, and share buybacks. And we are pursuing a couple of projects beyond the Geismar 1 and 2, they look pretty challenging on a number of fronts today.

And at the same time we had a heavy capital spend in the quarter and still generated quite a bit of cash. We have heavy capital spend I'd say for the first half of the year, so I think what you'll see us do is look at the dividend at around the normal time we have over the past years, March, April period.

We'll have a little bit more knowledge about the Geismar 1 project by that same time, and if the price stays anywhere close to where it is today or even lower, there will be lots of capacity to think about increased dividend share, buybacks, and possibly growing the Company if we find suitable projects that meet our investment criteria.

Okay. Great. And just a follow-up on the New Zealand turnaround that you had going there. Presumably it sounds like the MD&A and everything has gone well and everything is back up and running; we should presume that facility will be running at more optimal capacity rates going forward?

Maybe I'll ask Harvey Weake who is responsible for those projects just to make some comments on that.

Yes. Obviously we've finished those projects on time and under budget and the assets in New Zealand are in very, very strong condition, and we are in a position there we're pretty confident that we are going to be running it at what we've targeted to produce over the coming years.

Very good. Thank you.

Thanks Steve.

Chris McDougall, Westlake Securities.

Hello John. Congrats to you and the team for the great results.

Thanks Chris.

I wanted to hear your thoughts on the various announcements of new capacity in the US. I think there's a range of fairly certain kind of additions to existing plants, and then longer-term greenfield plants.

And what you think about for your own additions -- are you running a particular price set that is more aligned to $100 oil and the methanol correlation to that? Or how do you think these additions, other than yours, are going to go? And then what are you looking at for your own additions would be the question.

We have a team working on a potential Medicine Hat 2 project as well as a potential relocation of a third plant from Chile. What I would say is we're in a really difficult environment, mainly related to capital costs.

I've seen some recent numbers from McKinsey talking about piping and skilled trades starting to become extremely short in mid 2014 based on some of the projects that have been announced, not all of them. As well they're indicating there could be up to a 30% labor shortage to be filled by new trainees as well as migrant workers. So I think we are going to be in an environment where executing capital projects that are greenfield in nature is going to be extremely difficult.

Today if you wanted to finance a project you would go to one of the firms like IHS, the banks would anyways, and ask for their long-term methanol price forecast. If you run that number plus even $4.50 gas escalating at 2% and capital of even around $1,000 a tonne, which I think would be difficult with the environment we are seeing, you don't get a return that meets investment hurdle rates, so I think projects, methanol and others, are going to be very difficult.

We've recently seen Shell cancel their large GTL project and their capital estimates went up astronomically in a very short period of time. So there have been a number of announcements. I think we're pretty happy to be ahead of the curve in Geismar relocations, but we are seeing pressures and we haven't really seen many of the other new greenfield projects start.

So I think we're going to be in a very difficult environment for new build projects.

Okay. Thanks for that. And then shifting gears to Chile, what percentage of your gas was from Chile versus Argentina for the quarter? And is all of that Chile tolling production reported in your produced tonnes? Or is it not included in the produced tonnes?

You'll see a footnote in our results, so it was about 50/50 between Chile gas and tolling. And we were thinking about keeping it separate, but when you start looking at what that does to inventories and sales it just didn't make sense. So we disclose it and it's right around 50/50 in the quarter.

Great. Thanks.

Okay.

(Operator Instructions)

Robert Kwan, RBC Capital Markets.

Good morning. John, maybe just come back to a couple things here. You had mentioned here the cost pressures you are seeing, and just wondering if you've got some new thoughts as to roughly what you guys are thinking in terms of greenfield dollars per tonne. And although you don't have to make the decision today, just wondering if you look at the current environment, it sounds like the bias is to returning capital versus some of these challenging projects as you've been saying.

The dividend's an ongoing commitment so how do you think about really kind of jacking up dividend growth versus the shorter term being able to buy back shares and size that based on the free cash flow at the time?

Yes. So just on the capital project. We've had estimates around that $1,000 a tonne. We're still trading on a replacement cost basis around $850, so at a discount. I think it's more of a risk issue.

Meaning, it's all time and materials today. It's very, very difficult to get a lump sum turnkey, so you are taking a risk on all of these labor things I've been talking about. So you can put whatever numbers you want in your model, but the certainty of delivering on those numbers I think without a turnkey lump sum is very, very difficult.

McKinsey again recently we asked them and they said their view today from FID, so once you've made a final investment decision, and all the projects that have been announced in North America, only one has been a FID and that is the Celanese, it's 42 months in their estimation for building. So 42 months in the labor market that we are getting data about seems very risky, as far as completing a project on time, on budget, no matter what that budget is.

I recently asked some of the engineering firms as well what would be an estimated premium if you even consider a lump sum turnkey, because they don't want to take any risk at all -- they're targeting 30% range. So that's a non-starter. So it's difficult -- you can put whatever numbers you want to a model but until you actually complete the project and face the cost pressures, it's impossible to predict.

So just if you don't have a project that makes sense and from a risk point of view and an investment criteria point of view, we have had a record and will continue to have a record of returning excess cash to shareholders. Our dividend policy has been very clear. We first of all want it to be sustainable at the low end of the cycle.

We want it to be meaningful and we want it to grow. And we'll look at it as we've done every year in the next months and make a decision around that, and then excess cash beyond that will be returned to shareholders through share buybacks. That's the current view.

Okay. And then just coming to some comments you made earlier on the merchant MTO plants. In Asia operating rates down a bit but still running. Just wondering with some of the Southeast Asian supply that has come back, have you seen some MTO rates come back up, just balance off some of the extra supply with some extra demand?

Well, I think that's what we anticipate, but it's a factor of price. I think some of these plants have some scheduled maintenance as well, so the future is really hard to predict.

I would say that the price went to $500 on the spot basis and they continued to run. I think my view and some of our teams view is that they probably reduced operating rates to take advantage of selling some of the methanol they bought at high prices.

So they are opportunistic and I would be the same. So they're looking at economics every day and deciding how they can optimize for their shareholders, and I think that's the right thing to do.

Okay. Great. Thanks John.

Charles Neivert, Cowen.

Good morning guys. Afternoon as the case may be.

A few questions. One, what's the difference going to be on logistics costs once you're in Geismar and operating versus coming out of Trinidad? Is that going to be -- I'm assuming that the US gas price even with the contract will be slightly above whatever you're going to be doing in Trinidad.

Is that basically going to be a total trade off there, where your logistics costs are lower, so your net back is pretty much the same as Trinidad, or what are we looking at when that happens?

Too early to tell, Charlie. It really depends on the basin balances so I think it's a fair assumption as we start up Geismar we bring less Trinidad molecules into North America. That's a fair assumption. Where those go I think it's too early to tell.

Certainly I've said that when we modeled Geismar and then Geismar 2 we modeled as if half that product was going to go to Asia. Now those physical molecules are never going to leave the US, but we modeled it that way for return basis.

So where the Trinidad molecules actually end up, it's too early to tell and it really depends on growth in the basins and where we think the best place to grow our sales -- we did grow our sales significantly this year in Europe. And obviously I think the simplest way to look at the Trinidad molecules is a combination of Latin America and Europe, mainly Brazil in Latin America.

Okay. And I guess two others. One, cooking fuel -- methanol pure as a cooking fuel -- not pure but as a mixture in a cooking fuel in China has sort of been a stealth growth area. Is that continuing to see market?

My understanding is it's getting pretty big as an end market. Is that still sort of continuing along in the background?

It's always been there. And it continues to grow and we figured it out by plugging numbers. That's how we come to some of these uses.

You see it being used everywhere in China as far as a cooking fuel, not only in restaurants and homes. And we estimate it's around 1 million tonnes today and growing quite nicely.

Okay. And then last question, obviously when you get the new ships in, on an average year of moving those ships around, one ship around, what -- and assuming it's all going to be run on methanol just because the economics that go on methanol, how much methanol would one ship consume in a typical year of movement? Any ideas?

Good question because the Head of our Waterfront Shipping company, and it's probably going to be one of our largest customers here soon, which is an interesting phenomenon. On average I think he could use around 40,000 tonnes if it was to run 100% on methanol.

I'll remind you though Charlie, the nice thing about what we are doing is these are dual fuel. We have (multiple speakers), we can run bumpers when we're outside the attainment, and we can run methanol when we're inside. So having that flexibility is really, really going to give us a competitive advantage going forward.

Right. But my assumption is simply that you won't be the only ones in the world with those types of ships and we've talked in the past about the Scandinavian things going on now. And how big China -- again I'm just trying to sort of begin to bracket how big that market might be on a going forward basis, but you said 40,000 is sort of your highest number in a year per ship. But the more ships the better the uptake.

Yes. And I think I quoted a number -- if you look at that attainment area in the north part of Europe, which those regulations for low sulfur are coming in in January 2015, if every ship there was to convert to methanol, which they are not, you are talking about 40 million tonnes of demand just in that area.

So these are very, very large demands. So you don't need to get a very large part of the market to have a significant impact on the supply demand balance.

And that's just Scandinavia and that attainment area that we're talking about.

That's right.

Okay. Got it. All right. Very good. Thanks very much.

Thanks Charlie.

Chris Shaw, Monness, Crespi.

Yes. Good morning guys. A couple quick questions I think. What kind of margins -- on the tolling arrangement in Argentina, are those margins just a commission?

I'd rather not be too specific about those margins but you should not be thinking about them as a commission.

Okay. And then the follow-up I think was to Steve's question earlier on the buybacks; I can't remember, do you have an authorization in place, and what is it and the amount?

Yes. We don't have anything in place at this point. Traditionally when we've done buybacks, we put a normal course issuer bid in, and it allowed us to buy up about 10% of the float in any 12-month period. Traditionally what we've done is instead of trying to time the market is just put an order in every day for a similar amount of shares.

Right. Thanks. And then, I guess in the US, was there any sort of market reaction to the new, the Lyondell volumes? Did that have any early impact that you saw?

Well I think I'll remind you that we have an arrangement with Lyondell where any excess molecules over and above their personal needs around the world we market for them. So we've been able to adjust our supply chain based on these molecules coming in, and so far we haven't seen any impact on the supply demand balance as a result.

I think we needed those molecules. I think we were getting to a situation where the world was becoming very, very tight. So I think we need that and plus some other molecules to balance things out a little bit more.

Okay. And then in your guidance for Egypt for the year, I think you said 75% to 80% operating rates on average.

For the year. Yes.

Is that -- that would be lower than what you did in '13. Is that right?

Slightly. In the guidance I guided 70% last year so we overachieved. Egypt continues to be pretty unstable. We've done very well.

We have good alignment with the government, with our partners. I think we have been getting good gas volumes and guidance is guidance. It's just our best estimate based on everything that we estimate. But we are obviously going to try our best to do better.

And then just a quick last one. Looking at maybe first quarter as some of your new produced volumes come up, should we see purchase volumes decline already in the first quarter or is that going to be a slower process?

Again, quarter over quarter, you might see some declines. What I would say is directionally as we add up to 8 million tonnes of our own produced molecules, the amount of purchase product in our mix will reduce. Our goal is to have 80% of what we sell our own produced molecules, around 10% to 15% long-term off-takes like we have with numerous suppliers, and then the balance is spot.

We're always going to maintain a spot market presence to understand the supply demand balances in different regions, as well as to take advantage of the arbitrage opportunities, which have created significant value for the Company in 2013. So I don't think you'll see a proportion of spot sales as high as it has been in the past years, but we'll always participate in selling other people's molecules as well as buying and selling spot.

Okay. Great. Thanks a lot.

(Operator Instructions)

Brian MacArthur, UBS Securities.

Good morning John. I just want to go back to the transportation. You comment that you got $38 million in logistics year over year. Is that a lot of that backhaul?

Or is it truly rerouting ships? And I guess where I'm going with this, as you bring New Zealand back and you get a lot more tonnes in that part of the world, is there another function of dropping all-in costs as we move forward even before we get to Geismar?

Well, I think it's all of the above. And we did get a big blow to our Company in '07 and '08 when we lost our Chile assets, and then the knock-off effect was we were overshipped, overtanked, over a lot of things, and it takes years to work that through.

I think we've gotten really, really good at non-calling. We are doing way more backhauls than we ever have, and those are profitable for the Company. The New Zealand is very interesting. The more molecules we have in New Zealand we ship them up to Asia, and most of the time if not all the time we are bringing back gasoline and diesel to Australia and New Zealand, so those are really, really attractive for our freight situation.

So I continue to believe our teams are going to do an outstanding job and continue to improve our logistics costs, maybe not to the order of magnitude we saw in 2012 versus 2013, but we are going to continue as we get more and more molecules in our system whether they are our own or others to be able to optimize our supply chain. And the more molecules we have going through the same number of ships or slightly more than the same number of tanks, slightly more and your cost per tonne goes down quite nicely. So I think directionally we're going to continue to improve our situation.

And just on the lease shipping capacity I forget what it was. You used to have some and then you gave some up; you're well set up to get what you need to do all of this at the higher run rate of 8 million tonnes?

Yes. We just ordered six ships and we have options for three others. And I think target, we want to have a bit more what we call our own time charter or the vessels we own in our fleet because we see that market changing quite a bit as far as getting crews and having flexibility.

The more you backhaul you need to have real flexibility and you can only do that with your time charters, so that you can decide to change shipping at the drop of a dime. So I think having more of our own control, whether it's through own vessels or time charters versus what we did in the past is good business and I think you'll see us do that.

Great. Thanks very much.

Laurence Alexander, Jefferies.

Hello. Thanks for taking the follow-up. I guess given the gas composition you're getting in New Zealand right now, is that a mix that's allowing you to currently produce at a 2.4 million tonne run rate.

No. We are getting some high CO2 gas. So if everything goes perfect today, think of [2.25] something like that. But we are working hard to get the higher CO2 gas that's available, we're negotiating and we're optimistic we'll get it this year some time, but we haven't secured it yet.

Okay. Great. And then just to kind of -- it looks like methanol demand was up 10% this year if I look at your releases from last year and this year. How fast if you were to slice that between energy and MTO and traditional sources of demand, how fast did they grow?

Well, I don't have that off the top of my head; I can get you those numbers. But I think our numbers indicate around an 8% growth overall. And obviously MTO was a big part of that. But why don't we take that offline and get you the specific numbers, so I'm not guessing.

Okay. Thanks. I just noticed the two-thirds is now 40% for the nontraditional demand.

That's right. That's right. I just don't have the exact numbers in front of me.

The last question was just -- you've given some outlook as to the CapEx cost over the next few years and you mentioned the cost escalation. As you think about the volatility around that number, is it something underneath that 30% premium you mentioned, is it 10% or 20%, potentially more, a good bogey or?

Yes. Specifically related to Geismar I don't have a number to share. So I think we're looking at new build capital and we'll get a number, but it's again time and materials so you're taking all the risk on escalation, so whatever number you get it depends on how much contingency you build in and how much risk you transfer.

So I think it's very difficult to predict. What I would say is the capital to maintain our plants you should be thinking for every 1 million tonnes of operating capacity that we are operating about $10 million a year. So as we've done these major refurbishments and start-ups, et cetera, about a 8 million tonne run rate it's $80 million a year, so very, very low sustaining capital once we get everything done.

All right. Thanks John.

Chris McDougall, Westlake Securities.

Hello again, John. I just want to touch on your comment regarding buybacks for some excess cash. And just understand in the past you've talked about the mix of dividends and buybacks, and I was more under the impression that as your production volume grew overall that would be seen as more of a sustaining source of cash flow and would prompt dividend increases prior to buybacks. But I just wanted to drill down on that comment more and maybe give you the opportunity to expand.

Well, I think we have opportunities for both, but what we have prioritized for cash is growing the Company dividends and share buybacks. Our dividend policy is to have it sustainable, so you are right. As you have more produced molecules in your portfolio you're able to generate more cash even at low parts of the cycle, so it does make your dividend -- if you do decide to raise it, more sustainable.

So I think the more volume you have the more sustainability your dividend program becomes. We said growing. And we've grown it every single year except for the financial crisis period.

And then meaningful. What's meaningful? Everybody has their own definition, but if you looked at what we did last year I think the stock price was around $40 at the time and we increased it to $0.80 or around a 2% yield.

So we'll go through that exercise here and make a call on that dividend, recommend it to our Board. And look to announce similar timing around the AGM. And then as we get more comfortable with the Geismar projects and we look at what new build is, whether we go forward or not we'll have -- it looks like we'll have additional excess cash to look at buybacks.

Okay. Great. Thanks. And then lastly on inventory given the positive pricing environment here, do think any differently about managing inventory in the face of maybe if pricing were to pull back or so?

Yes. That's a good point especially on the purchased product. We are running our inventories extremely skinny. We are in a high-price environment, my experience in commodities over my life has been you never stay above the price -- the cost curve forever.

So it's nice while it happens and it's a windfall for our shareholders. So we are managing our inventories really, really closely to mitigate any impact if prices were to come down.

Okay. Thanks a lot.

Thank you.

Steve Hansen, Raymond James.

Yes. Thanks. Just one quick follow-up John.

I just wanted to drill down on Trinidad quickly. I was hoping you could comment on the upstream gas availability issue there and the platform retrofit cycle. I think previous commentary suggested the cycle would be finishing around the end of March or Q1, making gas perhaps more available over time there. Is that still the case or what is your situation there?

We continue to experience curtailments. The Minister of Energy was clear that he thought 2014 would be the end of the upstream maintenance.

I think there are probably going to be a few periods because the market is so finely balanced between supply and demand, if there's any maintenance issues at all or unplanned, you'll see some curtailments. But we do expect 2014 to be better than 2013. But again that's just guidance, until we actually see it, it's what we expect.

Okay. Very good. That's helpful. Thank you.

[Key Ali], Tiger Veda Management.

You spoke about the difficulty of bringing on capacity in the US due to cost increases and delays. You also commented on how profitable the Chinese situation is, the situation is in China I mean.

Could you touch on what is the situation in China with regards to new capacity? How much is coming on? How fast can it come on?

Are they the same issues you're dealing with in the US, do they occur there? Because I want to tie that in also to one thing you just shortly said, which was in your experience, commodity prices never stay above the cash cost. So I wanted to just bring it all together and figure out what's the situation in China on new capacity.

I wish I had all those answers because then I'd have a crystal ball, but just directionally -- the Chinese themselves, the MTO producers are looking outside of China to build. A lot of the production that's come on in China has been at the high end of the cost curve, and I think if you look at natural gas in China, prices continue to go up. And about a quarter of the production in China is still based on natural gas, and when you talk to those producers, you talk to government, they're anticipating higher gas prices and whether they can run at higher gas prices or not will be a factor of the methanol price.

So the future is really hard to predict. I think we will continue to see some building in China but not to the extent we've seen over the last years. I think from what we understand about the regulations that you have to have an associated derivative plant if you're building a methanol plant today to get a license for the coal.

Most of the choices today seem to be MTO as opposed to DME a few years ago. But a lot of the new built methanol that is being reported is really what we call integrated coal to Olefins, so they use methanol as a precursor to Olefins, and they make what is called a crude methanol, 90% methanol, 10% water so really not available in the merchant. In fact, the other side of the coin is when these integrated plants aren't able to run their methanol facilities, they go into the local spot market and buy merchant methanol to run their plant.

So I think it's really hard to forecast accurately all these dynamics. I think just directionally prices do not stay well above a cost curve in a commodity business for a long period of time. I mentioned the new build and the risks associated with that in North America.

If you had a view that the current price in North America is going to be sustainable for the next 15 years, then you'll see a lot more being built than what's been announced. But I think the prognosticators in the industry would have a different price tag than what we are currently seeing.

Thanks. Could you just as inaccurate as they may be, what are the current -- what is the range of the capacity growth in China, and what is the range of demand growth based on best judgment? Looking out for the next three years?

Yes. We are seeing a lot of new MTO projects in the 2015 period. Do they all get built? I think our current view is China will be an import market growing over time.

The demand there will continue to grow. And they will be an import market that will continue to grow.

Thanks.

Thank you. There are no further questions registered at this time. I would like to turn the meeting back to Mr. Floren.

Okay. Well thanks very much for the interest. Outstanding quarter. And we're heading into 2014 in a very good supply and demand situation as well.

We do expect higher sales volumes in Q1. And higher average realized prices as well versus Q4 2013. Offsetting these increases will be the impact of some of the higher-cost opening inventories we talked about. And also the benefit we experienced from an insurance recovery will not be repeated in Q1.

We're also expecting a higher effective tax rate in 2014 compared to 2013. The higher tax rate reflects the strong operating results in Canada and New Zealand where we have used all available unrecognized deductions and the effective tax rates in these jurisdictions will now approximate their statutory tax rates.

Overall, we are expecting Q1 to be another outstanding quarter of earnings and cash flows. Thanks for the interest in the Company and look forward to talking to you the next quarter. Goodbye.

Thank you. That concludes today's conference call. Please disconnect your lines at this time. And we thank you for your participation.